Technology

States Given Until Tuesday to Decide on Microsoft Settlement

By MICHAEL BRICK

Published: November 2, 2001

Federal prosecutors presented an agreement to settle the long-running antitrust case against the Microsoft Corporation ( news/quote ) in court today, just as a deadline for negotiations set by a federal judge expired. But the agreement was not endorsed by state prosecutors.

Faced with that legal obstacle, the judge, Collen Kollar-Kotelly of Federal District Court for the District of Columbia, gave the federal prosecutors and the software company four more days to convince the states to join the settlement. A separate lawsuit by 18 state attorneys general has been combined with the federal case, and the power of state lawyers to pursue their antitrust case separately is largely untested.

Judge Kollar-Kotelly had ordered the company and both sets of prosecutors to reach a mediated settlement by today or to prepare for a quick series of hearings, ending with remedies ordered by the spring. Under the Bush administration, the federal prosecutors have granted broad concessions to Microsoft, and some state prosecutors have said that they could not accept the settlement in its current form.

Today the states put up a unified front.

"While there have been some promising developments in the mediation over the past few days, the states have not joined today in the settlement agreement reached between the Department of Justice and Microsoft," said Tom Miller, the Iowa attorney general, who has spoken for the states through the negotiations. "As elected law enforcement officials we believe that it is imperative that we fully assess the specific language of the agreement."

"This historic settlement will bring relief to the market and ensure that consumers will have more choices in meeting their computer needs," said John Ashcroft, the United States Attorney General, in a statement.

William H. Gates, the chairman of Microsoft, called the agreement a "fair compromise."

"We hope that when the state attorney generals have reviewed the settlement, they will also agree that it's the right way forward," Mr. Gates said.

"This agreement contains significant rules and regulations on how we develop and license our software," he said, adding, "It allows Microsoft to keep innovating on behalf of consumers."

Shares of Microsoft, which climbed sharply on Thursday after news of the proposed settlement emerged, fell 44 cents, to $61.40, in Nasdaq trading today.

Since taking over the case, the Bush administration has made significant and broad concessions to Microsoft. Before the current round of mediated settlement talks began five weeks ago, the government agreed not to seek a breakup of the Redmond, Wash.-based company. It also dropped a central claim that Microsoft violated antitrust law by integrating its Internet Explorer browser into the Windows operating system.

What is left of the case — after an appeals court overturned parts of a lower court ruling that Microsoft violated antitrust laws and abused its monopoly power and after federal prosecutors abandoned many of the remaining claims — is the contention that the company bullied computer makers and shut out rival software makers.

This proposed settlement would broadly define as "middleware" a list of computing products that could potentially undercut the monopoly of the Windows operating system, according to the Justice Department. Those would include, for now, e-mail clients, media players and instant messaging software. Microsoft would be required to provide software developers with the codes to make such products work with Windows.

Consumers and computer makers would be free to substitute other middleware products for Microsoft's, the Justice Department said. To make sure this works in practice, the Justice Department said, Microsoft would be prohibited from entering exclusivity agreements with computer makers and from "retaliating" against companies that do not support its products.

Consumer groups and the company's industry rivals contend that this approach would place the responsibility for policing Microsoft's behavior with computer makers.

"It is a complete sellout which won't change Microsoft's business practices one iota," said Ken Wasch, president of the Software and Information Industry Association, a trade group with many Microsoft rivals as members.

In a telephone interview, Mr. Wasch compared the proposed settlement to asking a child to police his parents' conduct. And he said that Charles A. James, assistant attorney general for the antitrust division, "just got Bingaman-ed."

The reference was to Anne K. Bingaman, a predecessor of Mr. James in the Justice Department, who negotiated a settlement with Microsoft in 1995, and then found herself in the position of defending it from criticism, including skepticism expressed by another federal judge.